Fidelity brings ESG portfolios to advisers

Advisers can use Ethic to select from existing ESG models or construct their own

Sep 25, 2019 @ 12:05 am

By Ryan W. Neal

Fidelity Investments is turning to Ethic, a digital asset manager providing sustainable investing portfolios, to help financial advisers offer environmental, social and governance investing to clients.

Ethic will plug into Fidelity's brokerage platform so advisers can select separately managed accounts using existing ESG models or build a custom allocation using direct indexing.

Ethic co-founder Jay Lipman said his company works with each advisory firm on a consultative basis to craft allocations that align with the firm's existing investment strategies.

In addition to investment management, Ethic helps advisers feel more confident in talking to investors about sustainable investing, especially advisers who are new to it. Conversations around investors' values can be subtle and nuanced, Mr. Lipman said, and advisers often shut down conversations if they don't feel comfortable.

[Recommended video: Advisers should discuss ESG with wealthy clients before someone else does]

"We partner with these advisers to craft an offering, a solution, that actually is unique to an advisory firm," Mr. Lipman said.

By fitting the ESG portfolios into the firm's existing narrative to clients, "advisers at the firm gain confidence, feel educated and have the ability and proactivity to have this conversation with more clients," he said.

Bob Litle, senior vice president at Fidelity Institutional Asset Management, said support for values-based investing is one of the top requests Fidelity gets from financial advisers.

While Fidelity has some capabilities of its own, he said Ethic offers proven technology that goes further, especially around customization.

[More: Rich families pour wealth into ESG investments]

"Existing ESG vehicles require someone to accept a packaged version of what values they should care about," Mr. Litle said.

Fidelity was part of a $13 million round of funding Ethic closed in July. A Fidelity spokesperson said this new relationship does not change that investment.

Ethic's capabilities will only be available at first to a select group of firms. Mr. Litle said Fidelity is beginning with the largest RIAs and family offices, and screening for firms it feels will be the right fit.

"There is a good chance that there are advisers who are interested and won't be included in the initial scope," Mr. Litle said. "But we don't want to overextend and grow too quickly."

Partnerships like Fidelity's with Ethic show how serious the largest financial institutions are getting about ESG investing.

Ahead of this week's United Nations Climate Action Summit, firms like Bloomberg, Allianz Global Investors, AXA and Goldman Sachs released a report on the role financial institutions can play in transitioning to a carbon-free economy, and the University of California announced its pension and endowment fund, which totals about $83 billion, will soon be "fossil free."

"It feels like things are accelerating," Mr. Litle said. "We really think Ethic's approach and the general idea of tech-enabled personalized portfolios will crack this open [for advisers]."

[Register now for our ESG & Impact Forum at the U.N. on Dec. 5.]


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